IDEAS home Printed from
   My bibliography  Save this paper

The Volatility Structure of the Fixed Income Markets under the HJM Framework


  • Thuy Duong To

    () (School of Commerce University of Adelaide)

  • Carl Chiarella

    (University of Technology)

  • Hing Hung

    (University of Technology)


Here I consider the dynamics of interest rate processes in the multi-factor model specified in Heath, Jarrow and Morton (1992). Despite its flexibility and theoretical advances, the number of empirical studies using the HJM model remains inadequate, principally because of the difficulty estimating models in this class, which are high-dimensional, nonlinear, and involve latent state variables. Here I treat the estimation of a broad class of HJM models as a nonlinear filtering problem. I adopt the local linearization filter of Jimenez and Ozaki (2003), known to have some desirable statistical and numerical features, and estimate the model using maximum likelihood. The estimator is applied to the U.S., U.K. and Australian markets. Different two- and there-factor models are found to be best for each market. The contributions of the factors towards overall variability in interest rates and the financial rewards claimed by each factor are found to differ considerably over markets

Suggested Citation

  • Thuy Duong To & Carl Chiarella & Hing Hung, 2006. "The Volatility Structure of the Fixed Income Markets under the HJM Framework," Computing in Economics and Finance 2006 260, Society for Computational Economics.
  • Handle: RePEc:sce:scecfa:260

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sce:scecfa:260. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.